by Peter Schiff, Schiff Gold:
Last month, the New York Fed launched a pilot program for a “digital dollar.” Could this be the first step toward monetary totalitarianism?
Digital dollars would be similar to bitcoin and other cryptocurrencies. They would exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a central bank digital currency (CBDC) and bitcoin is the value of the digital currency is backed and controlled by the state, just like traditional fiat currency.
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The US isn’t alone in experimenting with CBDCs. The Reserve Bank of India is running a retail pilot program for digital rupees and the Chinese have been tinkering with digital yuan for a couple of years.
The digital dollar could ultimately replace physical cash. Proponents tout its convenience and security. But there is also a dark side. As economist André Marques put it, “CBDCs are mainly about more government control over individuals.”
The following article was originally published by the Mises Wire. The opinions expressed are the author’s and do not necessarily reflect those of Peter Schiff or SchiffGold.
The Federal Reserve is sowing the seeds for its central bank digital currency (CBDC). It may seem that the purpose of a CBDC is to facilitate transactions and enhance economic activity, but CBDCs are mainly about more government control over individuals. If a CBDC were implemented, the central bank would have access to all transactions in addition to being capable of freezing accounts.
It may seem dystopian—something that only totalitarian governments would do—but there have been recent cases of asset freezing in Canada and Brazil. Moreover, a CBDC would give the government the power to determine how much a person can spend, establish expiration dates for deposits, and even penalize people who saved money.
The war on cash is also a reason why governments want to implement CBDCs. The end of cash would mean less privacy for individuals and would allow central banks to maintain a monetary policy of negative interest rates with greater ease (since individuals would be unable to withdraw money from commercial banks to avoid losses).
Once the CBDC arrives, instead of a deposit being a commercial bank’s liability, a deposit would be the central bank’s liability.
In 2020, China launched a digital yuan pilot program. As mentioned by Seeking Alpha, China wants to implement a CBDC because “this would give [the government] a remarkable amount of information about what consumers are spending their money on.”
The government could easily track digital payments with a CBDC. Bloomberg noted in an article published when the digital yuan pilot program was launched that the digital currency “offers China’s authorities a degree of control never possible with cash.” A CBDC could allow the Chinese government to monitor mobile app purchases (which accounted for about 16 percent of the country’s gross domestic product in 2020) more closely. Bloomberg describes how much control a CBDC could give Chinese authorities:
The PBOC [People’s Bank of China] has also indicated that it could put limits on the sizes of some transactions, or even require an appointment to make large ones. Some observers wonder whether payments could be linked to the emerging social-credit system, wherein citizens with exemplary behavior are “whitelisted” for privileges, while those with criminal and other infractions find themselves left out.
(Details on China’s social credit system can be found here.)
The Chinese government is waging war on cash. And they are not alone. In 2017, the International Monetary Fund (IMF) published a document offering suggestions to governments—even in the face of strong public opposition—on how to move toward a cashless society. Governments and central bankers claim that the shift to a cashless society will help prevent crime and increase convenience for ordinary people. But the real motivation behind the war on cash is more government control over the individual.
And the US is getting ready to establish its own CBDC (or something similar). The first step was taken in August when the Fed announced FedNow. FedNow will be an instant payment system and is scheduled to be launched between May and July 2023.
FedNow is practically identical to Brazil’s PIX. PIX was implemented by the Central Bank of Brazil (BCB) in November 2020. It is a convenient instant payment system (using mobile devices) without user fees, and a reputation as being safe to use.
A year after its launch, PIX already had 112 million people registered, or just over half of the Brazilian population. Of course, frauds and scams do occur over PIX, but most are social engineering scams (see here, here, and here) and are not system flaws; that is, they are scams that exploit the public’s lack of knowledge of PIX technology.
